Bank of Canada Anticipated to Announce Another Significant Interest Rate Cut
BY TIO Staff
|Desember 10, 2024The Bank of Canada is expected to make another substantial adjustment to its key interest rate this week on the 11th December 2024. Prompting the financial markets to prepare for a notable 50 basis point rate reduction aimed at stimulating the Canadian economy.
Keep reading to learn more about it.
Key Drivers Behind the Expected Rate Reduction
Recent economic indicators have shifted expectations toward a more aggressive monetary policy move by the Canadian central bank. The Canadian government’s statistics agency reported a rise in the unemployment rate to 6.8% in November, up from 6.5% in October, driven by higher labor force participation. This rise in unemployment, coupled with other economic developments, has heightened expectations for a pronounced rate cut by the central bank.
The Bank of Canada is expected to lower its key interest rate by 50 basis points, reducing it from 3.75% to 3.25%. This anticipated move follows a similar reduction in October, when rates were lowered by half a percentage point as inflation reached the central bank's 2% target.
A recent Reuters poll indicates that a majority of economists predict a 50 basis point rate cut at the Bank of Canada's December 11th meeting. Among the 27 economists surveyed, around 80% foresee a 50 basis point reduction, while others anticipate a smaller 25 basis point rate cut. If the expected data is confirmed, this would mark the second consecutive reduction of this size, emphasizing the central bank's focus on addressing economic challenges.
Balancing Inflation and Economic Stability
While inflation has settled at the 2% target, some experts suggest that a 50 basis point rate cut may be excessive. They highlight signs of resilience in certain sectors of the economy, arguing for a more measured approach. Nevertheless, the central bank has already implemented rate cuts totaling 1.25 percentage points this year. That's nearly double the reductions made by the U.S. Federal Reserve, demonstrating its proactive stance in maintaining economic stability.
According to data from Trading Central on our economic calendar, for historical events;
- The price change on the USDCAD for the past 7 events ended bullish 71% of the time, over a 4 hour period after the announcement.
- The average price range for the USDCAD over a 4 hour period after the announcement was about 53 pips.
Conclusion
As the Bank of Canada prepares to announce another pivotal interest rate decision, the economic landscape remains a critical focus for policymakers and market participants. The anticipated rate cut reflects a response to rising unemployment, inflation stabilization, and mixed signals about economic resilience. The forthcoming announcement and press conference are expected to provide greater clarity on the central bank’s strategy for supporting Canada’s economic recovery and stability.
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